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Congress to examine credit card rate hikes


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December 4 2007: 6:57 AM EST

WASHINGTON (AP) -- Congress is renewing its scrutiny of the credit card industry, as some lawmakers denounce the practice of raising customers' interest rates when their credit scores decline, even if they make their card payments on time.

Industry critics say it's another example of abusive, confusing credit card practices that can push consumers deeper into debt.

Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, is holding out the club of possible legislation to spur voluntary changes by the industry.

"Working people are being squeezed," Levin told reporters Monday. In a call for "good, strong legislation" to be enacted next year, Levin said that "these abuses need to be remedied. ... We have some real momentum for reform."

With Americans weighed down by some $900 billion in credit card debt - an average $2,200 per household - practices of the very profitable industry have been ripe for scrutiny by the Democrat-controlled Congress. They have also grabbed the attention of the Federal Reserve, which plans to require credit-card issuers to give customers at least 45 days' notice before raising interest rates and to provide clearer information on fees.

At a hearing Tuesday, Levin's subcommittee, which has been investigating the industry, plans to look at how credit-card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline - even if they've paid credit card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which is automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.

In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said Monday: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."

Five big financial companies - Discover Financial Services (Charts), Bank of America (Charts, Fortune 500), Citigroup (Charts, Fortune 500), JPMorgan Chase & Co. (Charts, Fortune 500) and Capital One Financial (Charts, Fortune 500) - issue around 80 percent of U.S. credit cards, according to the subcommittee. Officials of Discover, Bank of America and Capital One are due to testify at Tuesday's hearing.

Citigroup and JPMorgan Chase recently have said they will discontinue the practice; Citigroup's change already is in place and JPMorgan Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.

Larry DiRita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase."

In March, the subcommittee focused on complex billing and interest-rate practices, such as charging interest on balances paid on time but not in full, and so-called double-cycle billing - which eliminates the interest-free period of consumers who move from paying the full balance monthly to carrying a balance.

The week before the subcommittee's hearing in March, Citigroup announced that it would no longer make "any-time-for-any-reason" increases to interest rates and fees charged to customers until a credit card expires and a new one is issued, usually in two years.

http://money.cnn.com/2007/12/04/news/econo...dex.htm?cnn=yes

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It's just one more reason not to carry a credit card balance.  If people only purchased what they could afford, the interest rate wouldn't matter.

I don't understand what the story is with the government getting involved in all of these issues to protect people who made bad choices (i.e. the mortgage mess).

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Funny I hear of personal responsibility, the cc companies have overstepped its bounds. You all know this. Those cards are designed to trap people. WTF does Sears need to charge you 24% on your account? Why do you think they have a in house attorney during bankruptcy with a large folder of charged off accounts? You talk about pay day lenders charging exorbitant fees, the cc companies do the same. These practices should be looked into. If the companies aren't cheating their card holders then it should not be a problem.

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I'm not saying that it's not shady of them to do that.  However, there are only 2 credit card companies doing that right now - Bank of America and Discover (JP Morgan Chase has agreed to quit doing it).  There are a zillion different credit cards out there - just switch to one that doesn't do it.  However, if people didn't carry balances, it wouldn't matter.  I don't have the foggiest idea what my interest rate is on any of my credit cards.  That's because I pay them off every month and don't buy things that I am not prepared to pay for (in full) in 30 days.  Unfortunately, it does mean saying "no" to myself sometimes.  That seems to be something a lot of people aren't willing to do.

And the mortgage mess...What kind of idiot makes the bigget purchase of his/her life and doesn't consider that they won't be able to make the payments WHEN interest rates go up?  How can you not do your research on something like that?  I guess if you know the government is going to bail you out, there's no reason.  What about the people who chose a mortgage loan that would suit them for the life of the loan?  Should the government send them a check for the extra interest they paid for choosing a smart loan vs. the cheaper option up front?

Also, this issue isn't about Sears charging 24% interest.  It's about credit card companies changing the interest rates when customers are making payments on-time and at least the minimum amount due.  Credit card companies are free to charge whatever interest they want to charge.  It's up to the consumer to know what that amount is - especially if they are planning to carry a balance.  And for all of those people who have a Sears card that aren't making their payments that you mention...it's because they bought something they couldn't afford; it's not because Sears chose to charge them 24% interest.

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The idiot that doesn't have the foggiest idea how to maneuver in the mortgage game. That is why they trust their lender to make the best decision or educate them when they buy their home. It is happening all over America. Those fliers that says that you can get this house for the same amount of rent didn't mention the rent of somebody that was living in a downtown area. Those idiots are called people that are ignorant to that information. Remember this, the American dream that everyone wants is THEIR house. It is my dream that is will realize in the next few years. I just don't want to bit off more than I can chew. There are alot of brokers and mortgage lenders that will tell you a different story.

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The problem has very little to do with interest rates. The problem lies in the fact that the average American family carries $8000 in credit card debt alone. We have learned from our government all about spending beyond our means and now we are looking to them to save us from ourselves.

If you really want to run these predatory lenders out of business, it's very easy. Get on a budget, pay off your debt, and never use their credit cards again.

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That's exactly my point.  Why do people depend on other people to educate them?  Especially when it comes to incurring debt in the hundreds of thousands of dollars.  When I bought my house in Atlanta in 2000, I had a mortgage broker.  He gave me a lot of different options.  There was no way that I was going to decide what to do based on what he told me.  He's in it to make money, and it's no skin off his back if I default on my loan.  So I researched, I read books and articles, and asked questions of people who had done it before me.  If you mess up on a home loan, you are screwed for a long time.  Why people go into it blindly is beyond me. 

I get the whole American dream thing.  But numbers are also pretty black and white.  It's easy to figure out what your payment is going to be when interest rates change.  If you can't afford that payment, it's either not the right house or not the right mortgage.  The problem is that people don't say no to what they want.  They see that they can own a house for $600/month (on a flier - WTF?), and they don't want to know the details that that $600 is going to become $1200 in a few years.  Because if they knew that, they wouldn't get to buy that house that they've fallen in love with.

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That's exactly my point.  Why do people depend on other people to educate them?  Especially when it comes to incurring debt in the hundreds of thousands of dollars.  When I bought my house in Atlanta in 2000, I had a mortgage broker.  He gave me a lot of different options.  There was no way that I was going to decide what to do based on what he told me.  He's in it to make money, and it's no skin off his back if I default on my loan.  So I researched, I read books and articles, and asked questions of people who had done it before me.  If you mess up on a home loan, you are screwed for a long time.  Why people go into it blindly is beyond me. 

I get the whole American dream thing.  But numbers are also pretty black and white.  It's easy to figure out what your payment is going to be when interest rates change.  If you can't afford that payment, it's either not the right house or not the right mortgage.  The problem is that people don't say no to what they want.  They see that they can own a house for $600/month (on a flier - WTF?), and they don't want to know the details that that $600 is going to become $1200 in a few years.  Because if they knew that, they wouldn't get to buy that house that they've fallen in love with.

Because love is BLIND?!? ;)

 
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The problem has very little to do with interest rates. The problem lies in the fact that the average American family carries $8000 in credit card debt alone. We have learned from our government all about spending beyond our means and now we are looking to them to save us from ourselves.

If you really want to run these predatory lenders out of business, it's very easy. Get on a budget, pay off your debt, and never use their credit cards again.

Okay so lets add to that:

1. Jobs that were paying good money that left to go overseas. Those jobs are being replaced with lower paying jobs

2. Ever increasing expenditures. ie gas prices, utilities, you name it.

3. people that want to hold out to get a better job, although it takes 6 months or more to achieve that. Or they have to reeducate themselves to get into another industry.

4. There are alot of factors that can cause a human being to supplement their lifestyles on credit.

It isn't right. It happens. We just don't need to be gouged by these companies that find anyway to stick a fee on your account.

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That's exactly my point. Why do people depend on other people to educate them? Especially when it comes to incurring debt in the hundreds of thousands of dollars. When I bought my house in Atlanta in 2000, I had a mortgage broker. He gave me a lot of different options. There was no way that I was going to decide what to do based on what he told me. He's in it to make money, and it's no skin off his back if I default on my loan. So I researched, I read books and articles, and asked questions of people who had done it before me. If you mess up on a home loan, you are screwed for a long time. Why people go into it blindly is beyond me.

I get the whole American dream thing. But numbers are also pretty black and white. It's easy to figure out what your payment is going to be when interest rates change. If you can't afford that payment, it's either not the right house or not the right mortgage. The problem is that people don't say no to what they want. They see that they can own a house for $600/month (on a flier - WTF?), and they don't want to know the details that that $600 is going to become $1200 in a few years. Because if they knew that, they wouldn't get to buy that house that they've fallen in love with.

While I agree with what you say, I also look at the folks that have no time to do that research. When I was a stockbroker, my service was for me to do the work for you. That is what justified my 1-5% commission. Now believe me that if I want to keep getting that 5% I better do a great job for you. Word of mouth can make or break any sales person. It is funny that we talk textbook answers to these questions. This is the exact reason why the Gov't is looking into this because they know these companies are going overboard.

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Everyone has the same number of hours in the day.  If you don't have time to do the research, then you should be prepared for a bad outcome. 

These companies are going overboard - I completely agree.  But they are able to do that because people are lazy and won't do their own research. 

I just don't happen to feel like it's the government's responsibility to protect us from our own laziness and stupidity.

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